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HomeRemortgageHow to remortgage to buy another property

How to remortgage to buy another property

Last updated on 13th September 2023 by Martin Alexander

Buying a second property can be an ideal way to use the equity in your existing home. You can do this with a remortgage and use the capital towards a mortgage deposit for another property. From a financial viewpoint, this is perhaps one of the best reasons to remortgage.

Raising a deposit with a remortgage is suitable for purchasing a buy-to-let or a second home.

Can I remortgage to buy a second property?

Although possible, getting a remortgage to buy another property depends on meeting a lender’s criteria. As a result, lenders will assess your circumstances to calculate whether or not a remortgage is possible. The biggest factor in a lender’s decision is the amount of equity you have. With enough equity, it’s likely a remortgage would be possible.

How does it work?

An example of how a remortgage would work when buying a second property:

Property value: £400,000
Outstanding mortgage balance: £200,000
Equity: £200,000
Current LTV: 50%
Borrow up to £380,000 (95% loan to value)
Funds to buy another property: £180,000

How do I remortgage one house to buy another?

To remortgage one home to buy another, your assessment will be based on:

  • The amount of equity you have – Having a large amount of equity in your home can make remortgaging easier. This is because you can release more capital and place a larger deposit on another home. As a result, lenders are likely to say yes to applicants with a sizeable amount of equity in the home they wish to remortgage.
  • Your income – As you’re taking on an additional mortgage, lenders must ensure you can afford the new mortgage. Furthermore, as you release equity, your existing mortgage will likely increase. For this reason, you’ll need to provide evidence that your income can repay two mortgages.
  • Credit score – Having a good credit score can improve your mortgage chances. If you’ve run into credit problems, you risk being declined. A lot of equity in your home can support your application, even with bad credit. Furthermore, there are specific lenders suited to credit problems.
  • Loan to value – You’ll need to leave at least 5% equity in your home, possibly more. This is why the loan-to-value of your remortgage will affect your assessment. The less equity you release, the easier it is to get a remortgage.

Some lenders may have better rates and remortgage fees, so it’s worth shopping around. Our advisors can also help you with comparing mortgages.

Which type of property can I buy with a remortgage?

The types of properties you can purchase from a remortgage include:

Why do I need equity to remortgage?

Before you can apply for a remortgage, you’ll need to assess the equity in your existing home. To calculate this, you must first know how much your property is worth.

You can arrange a valuation with an estate agent for a more accurate figure. Lenders will carry out their mortgage survey, but it’s important to know how much equity you have before applying for remortgage.

Once you know how much your home is worth, deduct your outstanding mortgage balance to calculate your equity. If you own your home outright, it becomes ‘unencumbered’. You can remortgage a home even if you own it outright, which is known as an unencumbered remortgage.

How much equity do I need to buy another house?

If you have no equity, then a remortgage won’t be possible. Some lenders may lend up to 95% LTV (loan to value), subject to other criteria, but the rates on offer are likely to be high.

How much can I borrow?

Although 95% remortgages are possible, lower LTV ratios will give you more options and better deals. Lenders will also make further assessments, such as your age, credit score, and reason for remortgaging.

If you wish to remortgage to buy another home, a 95% remortgage may be possible. A remortgage to purchase a buy-to-let property will only have a maximum LTV of 85%. Properties abroad will be even less at 75%. You can use our remortgage calculator here to determine how much you can borrow.

Will I be able to afford a second property?

By taking on a second mortgage, your payments will increase. Lenders must be satisfied that you can manage the additional cost of having two mortgages.

Mortgage lenders will typically lend between three and five times your annual income. For a remortgage to buy another property, you’ll likely want to borrow as much as possible. Lenders also vary in the income sources they’ll consider when making assessments. Some lenders will consider overtime, whereas other lenders won’t.

The same goes for self-employed borrowers. Some lenders will require accounts for just 12 months, but others require three years as a minimum. When you start to assess all the possibilities involved, it makes sense to use a specialist who understands each lender’s criteria. Mortgage advisors can ensure you get the best deal and the maximum mortgage amount possible.

Can I buy another home if I have bad credit?

A remortgage with bad credit is possible. The fact that you’d be using a remortgage to purchase a second property doesn’t make a huge difference. What’s more important to lenders are the credit issues you’ve encountered and how recent they were.

Applicants with bad credit generally require higher deposits or additional equity in the home they want to remortgage. That said, it doesn’t mean to say you can’t obtain a 90% remortgage. It simply depends on the severity of your credit issues and how recent they were. Lenders will also assess whether your credit problems were rare or you’ve consistently had financial problems.

Remortgages with poor credit aren’t easy, but there are several specialist lenders in the market. High street lenders are more likely to decline you when compared to specialist lenders. Speak to an advisor before applying. This will ensure that only suitable lenders are approached.

Read more: Can I remortgage with bad credit?

How to remortgage a buy-to-let property to expand a portfolio

Using a remortgage for a buy-to-let is possible. It’s a common strategy for landlords to leverage an existing portfolio to buy more property. The majority of landlords will have interest-only mortgages. This means that the property’s capital isn’t repaid until the end of the mortgage.

As a result, equity tends to be lower than in residential homes. This is because the majority of homeowners are repaying their mortgage balance, as well as interest on the loan. Lenders typically offer 85% mortgages if you wish to remortgage an investment property. This is calculated by assessing the rental income of the property.

Lenders may ask to see signed copies of tenancy agreements in addition to bank statements. This is to show evidence of rental income for the property you wish to remortgage. It’s also possible to remortgage a portfolio to buy a second home for you to live in.

FAQs

Buying a second property by releasing equity from an existing property can be a smart way to utilise excess capital. That said, you’ll need to prepare for the additional cost of having two mortgages.

You should aim for at least a 10% deposit if you’re planning on buying another house. Saving even more for a deposit will unlock better rates to help keep your mortgage payments low.

Yes, it’s possible to remortgage your home if you’ve recently started a new job. Lenders will be more concerned about the equity you have in your home and your ability to repay the mortgage you’re applying for.

Once probate has taken place, you should be able to remortgage an inherited property. That being said, some lenders will insist that you wait 6-12 months before applying for a remortgage.

Although it’s possible, you’ll want to calculate what charges you’ll have to pay and whether buying another home is a decision worth making. You’ll have to budget for the charges in addition to your deposit for your second property.

About the author

Martin Alexander
Senior Mortgage Advisor

Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.